The rating revision factors the deterioration in liquidity profile of the group due to challenges faced by RCap and its key lending subsidiaries, Reliance Commercial Finance Limited (RCF) and Reliance Home Finance Limited (RHF), to raise funds through traditional bank lines and debt market instruments.
“The downgrade is driven by low visibility in raising funds, thereby increasing the risk of delays in timely servicing of debt obligations, given the large amounts due for repayment in RCap over the next two months. RCap has repayment obligations of around Rs 1,060 crore due in May 2019 and around Rs 750 crore due in June 2019,” Brickwork said in rating rational.
"Going forward, RCap’s ability to monetise its core and non-core investments and unlock value by divesting stake in group exposures in a timely manner to service repayment obligations, reduce debt levels and maintain profitability and liquidity profile will be the key rating sensitivities," the rating agency said.
Responding to the rating cut, Reliance Capital said the company considered the rating action "completely unjustified and inappropriate", and that "there has not been any adverse change in the company's operational parameters from the time of the last rating action, just 2 weeks ago".
"The Company states that RCap's rating has to be considered on a standalone basis, delinked from the debt and ratings of RCF and RHF. RCL is a Core Investment Company (CIC) and is not dependent in any manner for funding on RCF and RHF," the firm said.
"The short-term rating action is limited to the commercial paper outstanding of Rs. 950 Crore, which would be fully repaid by September 30, 2019. The Company has been working diligently to ensure timely debt repayments and the Company's asset monetization plan is on track," it added.
Among individual stocks from ADAG, Reliance Home Finance hit a new low of Rs 22.30, down 7 per cent on the BSE. The stock has fallen below its previous low of Rs 22.50 touched on February 7, 2019 in intra-day trade.
Reliance Capital slipped 6 per cent to Rs 128, followed by Reliance Infrastructure (down 4 per cent at Rs 106) and Reliance Nippon Life Asset Management (down 1 per cent at Rs 192).
Reliance Communications, however, locked in upper circuit for third straight day, up 5 per cent at Rs 1.96. The stock hit an all-time low of Rs 1.66 on April 30, 2019, tanked 92 per cent from its 52-week high level of Rs 21.65 on August 14, 2018. Reliance Power and Reliance Naval and Engineering were up 4 per cent each at Rs 6.73 and Rs 8.89, respectively.